Research On The Tunnels Effect Of Inside Information In Listed Companies

Insider trading has attracted attention of individual investors,supervision administration and academics for years.Permitting insiders to trade stocks not only increase the liquidity of the capital market but may also cause fairness and efficient problems.Investors believe that managers own valuable insides information which help them precisely predict future stock prices because of their positions in the corporates.Therefore,research on whether insiders obtain insides information,how they obtain insides information and how to prohibit this situation is necessary for the developing of the capital market.This paper analysis the origin of abnormal return in insider trading based on the EMH proved by Fama.Furthermore,I review significant works in insider trading,and study the features of insider trading in China stock exchanges.This paper use the insider trading in corporates public listed in Shanghai Stock Exchange and Shenzhen Stock Exchange from 2006 to 2018 as dataset,and employ multi-linear regression,event study and optimal scaling to systematically research on the profitability of insider trading in China capital market,the tunnel insiders obtain insides information,and factors which influence the relation between information tunnel and insider trading profitability.The result show that insiders in China stock exchanges gain significantly abnormal return in both short-term and long-term.The short-term abnormal return is the market's reaction to the insider trading as a new information,and the long-term abnormal return reveal the information advantage of insiders.Moreover,higher corporate transparency can weaken the positive relation between information tunnel and trading performance.Furthermore,to ensure the robustness of the result,I change the length of event window,and the empirical result hold.I also employ two stage least square model to avoid the influence of endogenous problem.The conclusion of this paper contributes to listed companies,individual investors and supervision administration.According to the review of related theory and empirical results,board meetings is an important way through which insiders obtain valuable information.Therefore,corporates should improve the information publishing mechanism to eliminate the asymmetric information and further avoid insiders' tunnelling behaviours.Investors should focus on insider trading around board meetings,since insiders' information advantages are more significant.Moreover,according to the efficiency of China capital market,insiders in Chinese listed corporates are currently gaining significant abnormal return.Hence,administrators should enhance the information publishing system to decrease information opaqueness.